Question

Organic Specialties sells organic mixes for soups. The company produces 5,000 packages per day. The total variable cost for making one bag of Organic split pea soup is $3. The average fixed cost per bag is $.90. The company charges $6.50 per bag and earns a 40 percent profit. Calculate the break-even point in units.

Answer 1

Break even point in units is 12858 units.

Step-by-step explanation:

The break even point in units is the number of units that are needed to be sold by the company to earn enough total revenue to cover its total costs. It is a point of no profit and no loss. The break even point is calculated as follows,

Break even point in units = Total fixed costs / Contribution per unit

Where,

Contribution per unit = Selling price per unit - Variable cost per unit

Total fixed costs per day = 0.9 * 5000 = $45000

Contribution per unit = 6.5 - 3 = $3.5

Break even in units = 45000 / 3.5 = 12857.14 units rounded off to 12858 units